Swiss to pay 2 bln Sfr for German tax deal-paper

* Upfront payment less than 10 bln Sfr originally demanded

* Deal expected on Wednesday

* Swiss president says banks have no interest in untaxed assets

ZURICH, Aug 7 (Reuters) - Germany has agreed that Swiss banks will only have to pay 2 billion Swiss francs ($2.6 billion) as an upfront payment to seal a deal on Wednesday to regularise untaxed money stashed in secret accounts, a Swiss paper reported.

Germany had originally sought a payment of 10 billion francs but this was seen as too much for big banks UBS , Credit Suisse to manage, the SonntagsZeitung reported, citing unnamed sources involved in the talks.

Switzerland's two biggest banks UBS and Credit Suisse are expected to pay the majority of the advance payment but other smaller banks will also have to cough up. The upfront payment should ultimately be recouped from the bank's clients.

The advance payment is part of a deal aimed at settling a dispute over an estimated 200 billion francs held by German citizens in untaxed Swiss accounts.

The newspaper said in return for limiting the advance payment, the two sides had agreed on a withholding tax on future interest income of 26 percent, above the 25 percent Germany levies on capital gains and profits from share sales.

Switzerland and Germany are expected to agree the outlines of the deal on Wednesday after months of negotiations.

After meeting German Foreign Minister Guido Westerwelle on Saturday, Swiss President Micheline Calmy-Rey said she was pleased the talks would be brought to a conclusion soon.

"Switzerland's banking sector has no interest in untaxed assets," she said in a statement.

The deal will preserve Swiss banking secrecy as the banks will collect the withholding tax without revealing client details to the German tax authorities.

Several Swiss banks have been in the crosshairs of foreign tax authorities after UBS had to promise in 2009 to hand over 4,450 account names to settle a U.S. tax probe. Julius Baer paid to settle with German authorities, who have also raided the offices of Credit Suisse. . ($1=0.763 Swiss Francs) (Reporting by Emma Thomasson; Editing by Mike Nesbit)